On Thursday, the Bothell company saw the downside, and it looked a lot like a cliff.

Nastech's stock plummeted more than 37 percent on news Merck had bowed out of a partnership to develop an obesity drug. Merck found the nasally delivered drug, PYY 3-36, had no effect in a preliminary study.

Investors sent shares down $8.59 to close at $14.43.

But Paul Keough, an analyst with Susquehanna Financial Group, isn't ready to abandon hope for Nastech's obesity-drug program, which stood to earn $341 million in potential milestone payments from Merck.

"I think it's an extreme response," he said about the stock's plunge Thursday.

Nastech isn't giving up, either.

The Merck study showed the drug did enter the bloodstream through the nose and was safe, said Nastech CEO Dr. Steven Quay.

PYY mimics a natural hormone and is designed to make the patient feel full after eating fewer calories.

The company intends to tinker with the dosing in subsequent studies. It says it can afford to run those studies on its own, before seeking another partner.

"There are at least two large pharmaceutical companies that have PYY programs involving injectable forms of the drug," Quay said in an interview. "We think a nasal spray would be pretty attractive."

PYY's stumble casts a shadow on other products in Nastech's pipeline of nasally delivered drugs.

But Quay said that evidence from the company's studies shows "our delivery system works."

Procter & Gamble must think so, too.

Last month, the two companies announced a partnership to develop a nasally delivered hormone to address osteoporosis, in a deal worth up to $577 million in milestone payments for Nastech.

"They wouldn't have stepped up to that kind of a deal with us if our delivery system hadn't already established safety and efficacy," Quay said.